- The Indonesian medical device sector is expected to double in value, reaching USD6.5 billion in 2026
- Indonesia allows medical device subsidiaries to be 100 percent foreign owned
- Most medical devices are imported into the country, but there are advantages to producing them locally
The Indonesian medical device sector has notched impressive growth in the aftermath of the pandemic. A combination of demographics, favourable government policies, and rising demand has seen many foreign companies enter the market. Opportunities are still on offer for those considering the country. Asian Insiders’ partner in Indonesia, Primadi Soerjosoemanto, provides insights into the current situation.
The Indonesian medical device sector is growing at a rapid pace. Market value is expected to rise from USD3.5 billion in 2021 to USD6.5 billion in 2026. Meanwhile, the number of facilities manufacturing medical devices and equipment increased by 361 percent between 2015 and 2021, according to data from the country’s Ministry of Investment.
The country’s demographics highlight why the industry has grown and is predicted to flourish further in the coming years. For starters, nearly 13 percent of Indonesia’s population will soon be classified as elderly, creating a need for specialised products.
There is also a growing middle class within Indonesia’s large population and this group is seemingly more health conscious. According to the World Health Organization, a steady increase in per capita health spending was recorded over the past 20 years. This trend should continue moving forward.
Understanding Jaminan Kesehatan Nasional and the e-Katalog
Another key driver for the growth of the Indonesian medical devices sector has been Jaminan Kesehatan Nasional (JKN). This is the national health insurance scheme that currently covers more than 90 percent of the population and will eventually include everyone.
The next step is to improve the quality of care and services provided under JKN. An increase in the demand for advanced medical equipment is already being seen and is expected to grow in the coming years.
Under JKN, devices and equipment are obtained by medical facilities through an online procurement system known as the e-Katalog which is managed by the Government Agency for Procurement of Goods (LKPP).
Suppliers need to negotiate prices with the government in order to be included in the e-Katalog, however. This can create some challenges for those without operating experience in the country. Finally, it is possible for medical devices not part of the e-Katalog system to be acquired by hospitals independently.
Indonesian medical device sector supports foreign investment
Among the most appealing aspects of the Indonesian medical device sector for overseas businesses is the fact the country now allows for 100 percent foreign ownership of subsidiaries. This regulation has been in place since 2021 when Presidential Regulation No. 10 was approved. Before the new law, foreign ownership of an Indonesian subsidiary had been capped at 49 percent.
What this has done is given firms more options when entering the market. Companies can do everything on their own, assuming they have received full regulatory approval to do so. Alternatively, firms may opt for a local partner to act as a representative. Both are viable strategies to pursue in the country.
The third strategy would be to appoint a third party as a license holder or importer of records (IOR) services to import medical devices into the country. From this point, it’s possible to partner with multiple distributors which can be advantageous given the vast geography of Indonesia and segmented potential customer base.
This is a streamlined approach that some major corporations have already benefited from. It does require a knowledgeable partner with an understanding of the local market and connections across Indonesia.
The Health Act & medical devices
One of the biggest challenges for the Indonesian medical devices sector has been distribution. Understanding the licensing process was too complicated and negatively impacted the industry, the Health Act, passed in 2023, contained a provision focused on eliminating burdensome hurdles.
Instead of requiring each device to have its own distribution permit, companies are now granted a business permit to produce and distribute their products. Additionally, the government’s Online Single Submission (OSS) system is used for the process. This digitalisation of the government’s compliance systems is another step in the right direction.
What medical devices are currently made in Indonesia?
At present, Indonesia produces basic medical devices that do not require much in terms of technology or skills. These include:
- Surgical gloves
- Orthopedic aids
- Hospital furniture
- Wheelchairs
- Disposable gowns
- Medical needles
- Surgical thread
There is a pressing need for advanced medical devices and equipment, such as certain types of X-ray machines, to be made domestically. Nearly 90 percent of these are currently imported as they are either unavailable or too expensive to be made in Indonesia.
This equipment is becoming increasingly in demand as the level care across Indonesia improves. Until the country develops its production capabilities, import opportunities for those manufacturing radiotherapy equipment, electrical mucus suction devices, mammography, and a wide range of technologically advanced tools will remain strong.
It should be added that Indonesian government prohibits the import of used or refurbished medical equipment.
Exporting vs. manufacturing locally
The most significant decision for many foreign businesses is whether to export their products to Indonesia or produce them locally. Imports still dominate the market. A 2020 Ministry of Health report found that 94 percent of medical devices circulating in the country came from overseas. The number has fallen since then but remains high.
Given the problems that can create, the Indonesian government made the medical device industry an area of emphasis during the pandemic. Progress has been made to scale domestic production and reduce reliance on imports from 2021.
For those exporting products, there are a few considerations to note. First, competition in this space is fierce with manufacturers from Europe, the United States, South Korea, and China all active in Indonesia. Second, medical equipment has an import tax between five and 30 percent, along with the standard 11 percent value added tax.
Recently, the government rolled out local content requirements which barred more than 5,400 medical device product types from being imported into the country. These goods must now include 40 percent domestic content before receiving permission to be sold through the public procurement system.
As Indonesia explores ways it can reduce medical device sector imports, manufacturing locally provides many benefits, especially when you factor in that it’s now possible to have 100 percent foreign ownership of subsidiaries.
Another option is to partner with an original equipment manufacturer (OEM) in Indonesia. It is a middle-road approach for firms where they license their technology to an Indonesian factory and produce products in the country but don’t handle the process themselves. This ensures availability without being responsible for import taxes or the burden of overseeing local production.
The country boasts strong manufacturing capabilities, although this method isn’t possible for all medical devices. It is best to speak with a local expert who can provide you with details on what strategy is best suited for your goals.
Final thoughts
With local manufacturers providing limited competition and demand for medical devices set to increase, international businesses eyeing expansion into Asian markets should explore Indonesia. The country now permitting full foreign ownership of local subsidiaries is further proof of the government’s commitment to building a thriving industry capable of supporting health and wellness-related goals.
It should also be mentioned that there are several other opportunities in health and wellness worth considering as well, both locally and across Asia. The Indonesian medical services sector is experiencing growth with several international organisations having entered the market in the past ten years.
Elsewhere in the region, the Malaysian medical device industry is thriving and offers opportunities for those focused on exports. Meanwhile, medical tourism in Thailand has become one of the country’s most exciting growth sectors.
The Indonesian medical device sector presents foreign companies with opportunities, especially those willing to manufacture products locally. For a no-obligation discussion about available opportunities, please get in touch with Primadi Soerjosoemanto, Indonesia Partner: primadi.ws(at)asianinsiders.com or Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com.